Header Navigation:

Supply Chain Management, SCM, SCRC Supply Chain Resource Cooperative, Poole College of Management, North Carolina State University

Tackling real-world supply chain management challenges by applying research, experience and knowledge.

SCRC Article Library: Six Sigma: Where is it now?

Six Sigma: Where is it now?

Published on: Jun, 24, 2003

by: Scott Frahm, SCRC

Six sigma is a statistical level that represents 3.4 defects per million. Six Sigma is a process that has been around since the late 1970s and mid-1980s. It was developed by Mikel Harry at Motorola in an effort to minimize costs attributed to poor quality for the company. Though Harry is credited with creating the modern day Six Sigma, its roots can be traced to Philip Crosby’s 1979 book Quality is Free (1).

Harry formed a team to investigate the effectiveness of the six sigma methodology because Motorola was experiencing serious quality issues. Then, Harry and Richard Schroeder began applying this methodology within the company and witnessed dramatic results. The results of the six sigma projects included “a 58 percent reduction in the cost of quality, a 40 percent reduction in errors, and a 60 percent reduction in the time it took to design a new product (1).”

Implementing a six sigma program can dramatically reduce errors and poor quality for an organization representing impressive savings. Yet, it is believed that most organizations operate at three sigma, which translates to 66,000 errors per million (2)! General Electric openly embraced six sigma with the backing of its former CEO Jack Welch and defines its six sigma initiative as a “highly disciplined process that helps us focus on developing and delivering near-perfect products and services (3).”

With Jack Welch singing the praises of the benefits of six sigma, the interest was strong initially. After all the fanfare generated by media coverage in the mid-1990s, interest has seemingly waned. Though the hype behind the six sigma machine has subsided, many companies are still utilizing six sigma. Trends in six sigma these days include:

  • Organizations sharing their six sigma knowledge with suppliers
  • Shift from discrete manufacturing to other businesses
  • New product development

Knowledge Sharing with Suppliers

Some organizations have run the gamut with six sigma inside their organization and are now looking outside the organization. Companies are now teaching their suppliers about the benefits of six sigma. This represents an untapped opportunity for both organizations to improve their performance by reducing errors throughout the supply chain.

No organization better utilizes six sigma than General Electric. One of the first to implement six sigma, General Electric claimed that its six sigma initiative saved the organization $2 billion in 1999 (4). Having identified the lion’s share of savings within the organization, General Electric has moved on to its suppliers to help them implement six sigma programs. In its effort to reduce its supply base, General Electric favors companies that have adopted six sigma programs. For example, faced with 30 printed circuit board producers, GE Medical plans to reduce that number to three and will favor organizations that have made a commitment to six sigma (5).

Discrete manufacturing to other businesses

Six sigma was initially seen as benefiting large manufacturing companies because “factory processes tend to be both repetitive and easy to track as goods move along the line (2).” Motorola, General Electric, and Allied Signal (now Honeywell), all involved in manufacturing, were the first organizations to implement six sigma and realize significant savings. However, the tide has turned and companies in other lines of business have recognized that implementing six sigma can improve their businesses. Industries that have recently implemented six sigma include chemical, financial, healthcare, and retail.

Transaction-based services stand to benefit the most. To put the significance of six sigma into perspective, the imperative of employing six sigma in healthcare, financial institutions, and other areas can be illustrated by the following quote from Thomas Pyzdek’s 1999 book, The Complete Guide to Six Sigma:

“Virtually no modern computer would function. 10,800,000 healthcare claims would be mishandled each year. 18,900 U.S. Savings Bonds would be lost every month lost every month. 54,000 checks would be lost each night by a single bank. 4,050 invoices would be sent out incorrectly each month by a modest-sized telecommunications company. 540,000 erroneous call details would be recorded each day from regional telecommunications company. 270 million erroneous credit card transactions would be recorded each year in the United States (6).”

In the chemical industry, Dow Chemical Co. is an organization that has recently adopted six sigma. Since implementing its six sigma program Dow has identified major improvements. Dow claims that each six sigma project has saved approximately $500,000 a year. For example, on one of its projects Dow discovered “that an additive was causing imperfections in packaging materials enabled Dow to reduce defective items on that line by 70 percent (2).”

New Product Development

One of the latest developments with six sigma is its integration into new product development. Employing six sigma during new product or service design has the potential to save an organization a considerable amount of money. For example, according to Lean Sigma Technologies, LLC, an international consultancy, “70 to 80 percent of all quality problems are design related and not manufacturing caused (7).” If these quality issues are addressed during design, an organization can eliminate costly quality issues once the product is released.

The term used when six sigma is utilized in new product development is Design For Six Sigma. This methodology strives to design processes and products from inception whereas six sigma tackles problems on existing processes or products.

According to Subir Chowdhury, author of the book “Design For Six Sigma: The Revolutionary Process for Achieving Extraordinary Profits”, “Companies that correctly employ Design for Six Sigma will do less and less Six Sigma because the product is designed right the first time (8).” The drawback however, is that it more difficult to quantify the savings involved with new product development than it is to attack an existing process where waste has already been identified (8). Yet, ignoring it could negatively impact an organization’s future performance.

References:

(1) Philips, E. (Dec, 2002). Six Sigma: The Breakthrough Management Strategy Revolutionizing the World’s Top Corporation. (Book Review) Consulting to Management, 57-59.

(2) Arndt, Michael. (Jul, 2002). Quality Isn’t Just for Widgets. Business Week, .

(3) Gourishankar, T. and Subramaniam, S. (Jan. 1999). Six Sigma- Does it Really Add Up? Financial Times Limited.

(4) Schmitt, B. (Apr, 2000). Moving Ahead with Six Sigma. Chemical Week.

(5) Anonymous. (Jan, 1999). Using Six Sigma to manage suppliers. Purchasing.

(6) Pyzdek, Thomas. (1999). The Complete Guide to Six Sigma.

(7) Retrieved from Lean Sigma web site 2-25-03.

(8) Jusko, J. (Dec, 2002). Best Practices – Prevention is the Cure. Industry Week.

Supply Chain Resource Cooperative Poole College of Management NC State University 2806-A Hillsborough Street Raleigh, NC 27695-7229